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AI frenzy propels stocks into thrilling first half of 2024
The real estate market’s biggest challenge isn’t going away any time soon.
Economists at Bank of America warned that the housing market will remain “stuck in the mud and unlikely to recover” until 2026 as the supply of homes for sale remains near record levels.
The so-called lock-in effect for homeowners who secured ultra-cheap mortgages when rates were low during the pandemic has left them in place.
The investment bank believes the impacts of this could last six to eight years, limiting real estate activity and, in turn, residential investment that feeds into GDP calculations.
The “lock-in” effect can last 6 to 8 years, reducing real estate activity in the process (Source: Bank of America)
High interest rates have had a significant impact on home ownership.
Mortgage rates remain around 7% despite the recent reduction in borrowing costs, keep supply low and increase house prices that trade hands.
Home prices hit a new record in April, although annual growth slowed from the previous month, according to the latest available data from Case-Shiller. Bank of America expects home prices to grow about 4.5% this year, 5.0% next year and 0.5% in 2026.
“House prices have already surpassed their long-term fundamental value based on disposable income,” Bank of America economist Michael Gapen wrote in a note to clients Friday.
“Second, our economic outlook calls for continued normalization as the effects of the pandemic become more visible in the rearview mirror. The structural shift in housing demand that has driven up home prices is likely to fade over time. The economy will fall significantly.”